Correlation Between Federated Municipal and Vanguard Pacific

Can any of the company-specific risk be diversified away by investing in both Federated Municipal and Vanguard Pacific at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Federated Municipal and Vanguard Pacific into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Federated Municipal Ultrashort and Vanguard Pacific Stock, you can compare the effects of market volatilities on Federated Municipal and Vanguard Pacific and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Federated Municipal with a short position of Vanguard Pacific. Check out your portfolio center. Please also check ongoing floating volatility patterns of Federated Municipal and Vanguard Pacific.

Diversification Opportunities for Federated Municipal and Vanguard Pacific

0.8

Correlation Coefficient

Federated Municipal  Vanguard Pacific

Very poor diversification

The 3 months correlation between FEDERATED and Vanguard is 0.8. Overlapping area represents the amount of risk that can be diversified away by holding Federated Municipal Ultrashort and Vanguard Pacific Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard Pacific Stock and Federated Municipal is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Federated Municipal Ultrashort are associated (or correlated) with Vanguard Pacific. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard Pacific Stock has no effect on the direction of Federated Municipal i.e., Federated Municipal and Vanguard Pacific go up and down completely randomly.

Pair Corralation between Federated Municipal and Vanguard Pacific

Assuming the 90 days horizon Federated Municipal is expected to generate 5.13 times less return on investment than Vanguard Pacific. But when comparing it to its historical volatility, Federated Municipal Ultrashort is 14.29 times less risky than Vanguard Pacific. It trades about 0.25 of its potential returns per unit of risk. Vanguard Pacific Stock is currently generating about 0.09 of returns per unit of risk over similar time horizon. If you would invest  1,353  in Vanguard Pacific Stock on December 25, 2024 and sell it today you would earn a total of  61.00  from holding Vanguard Pacific Stock or generate 4.51% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Federated Municipal Ultrashort  vs.  Vanguard Pacific Stock

Federated Municipal

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Federated Municipal Ultrashort are ranked lower than 19 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong basic indicators, Federated Municipal is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Vanguard Pacific Stock

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Vanguard Pacific Stock are ranked lower than 7 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly strong forward indicators, Vanguard Pacific is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Federated Municipal and Vanguard Pacific

The main advantage of trading using opposite Federated Municipal and Vanguard Pacific positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Federated Municipal position performs unexpectedly, Vanguard Pacific can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Vanguard Pacific will offset losses from the drop in Vanguard Pacific's long position.

The idea behind Federated Municipal Ultrashort and Vanguard Pacific Stock pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Optimization module to compute new portfolio that will generate highest expected return given your specified tolerance for risk.